Market Action

October 25, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.11% 4.03% 43,821 10.66 2 0.0598% 1,019.7
Fixed-Floater 4.96% 3.16% 162,573 6.49 7 -0.0165% 1,026.6
Floater 4.53% -15.02% 74,843 6.49 5 0.0716% 1,019.9
Op. Retract 4.68% 2.00% 86,929 2.38 17 0.0422% 1,019.2
Split-Share 4.94% 3.77% 159,387 3.27 11 0.0158% 1,022.3
Interest Bearing 6.88% 5.15% 56,321 2.00 7 0.1364% 1,024.1
Perpetual-Premium 5.09% 3.94% 211,798 4.26 47 -0.0254% 1,036.4
Perpetual-Discount 4.60% 4.63% 538,163 16.16 7 -0.5466% 1,031.6
Major Price Changes
Issue Index Change Notes
SLF.PR.D PerpetualDiscount -2.6369% The underwriters are unloading (have unloaded?) their inventory! See SLF.PR.D : Inventory Blow-out Sale!
MST.PR.A InterestBearing +1.1527% Now has a pre-tax YTW of 4.66%, based on a bid price of $10.53 and a maturity at $10.00 on 2009-9-30. Only 4.66% on three-year paper rated Pfd-2(low) by DBRS? That’s getting close to what you can do in the regular bond market … commissions and spreads become very important!
Volume Highlights
Issue Index Volume Notes
SLF.PR.D PerpetualDiscount 666,550 Huge day! See SLF.PR.D : Inventory Blow-out Sale!
CM.PR.A OperatingRetractible 304,950 Scotia crossed 200,000 @ 26.78, then Desjardins crossed 100,000 at the same price. Pre-tax YTW of 2.01% based on a closing bid of $26.62 and a call 2007-11-30 … realized yield will have been 3.82% if it survives until its softMaturity 2011-7-30.
RY.PR.W PerpetualPremium 258,170 Scotia crossed 230,000 @ $26.12, then 22,000 at the same price. YTW is 4.15% based on a call 2014-03-26. This was also a big trader yesterday.
SLF.PR.B PerpetualPremium 132,550 Scotia bought a total of 49,800 in six tranches from National just before the close, mostly at $25.50. Presumably a lot of the activity here was related to the SLF.PR.D : Inventory Blow-out Sale!
SLF.PR.C PerpetualDiscount 79,511 This issue is virtually identical to the SLF.PR.D, but the closing bid was $0.27 higher. Such is the pref market.

There were fourteen other index-included issues trading over 10,000 shares today.

HIMI Preferred Indices

HIMI Preferred Indices : August 31, 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1994-8-31
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,063.6 0 0 0 0 0 0
FixedFloater 1,063.6 0 0 0 0 0 0
Floater 1,003.7 4 1.25 5.83% 14.9 132M 6.46%
OpRet 968.9 18 1.32 6.93% 5.4 87M 7.33%
SplitShare 968.9 0 0 0 0 0 0
Interest-Bearing 968.9 0 0 0 0 0 0
Perpetual-Premium 1,001.0 7 1.14 6.66% 4.1 55M 8.16%
Perpetual-Discount 1,015.4 0 0 0 0 0 0

Index Constitution, 1994-08-31, Pre-Rebalancing

Index Constitution, 1994-08-31, Post-Rebalancing

Issue Comments

BMO.PR.G

We’ve had a look at RY.PR.K … now let’s have a look at the other constituent of the HIMI OperatingRetractible Index with a negative Yield-to-Worst: BMO.PR.G. The option schedule is:

         

  • Redemption      2005-08-25      2006-08-24  25.500000
  • Redemption      2006-08-25      2007-08-24  25.250000
  • Redemption      2007-08-25   INFINITE DATE  25.000000
  • Retraction      2008-05-25   INFINITE DATE  26.040000

Which, when analyzed with the 2006-10-24 closing bid of $25.59 results in the optionCalculationList:

        

  • Call  2006-11-23 YTM: -2.10 % [Restricted: -0.17 %] (Prob: 28.69 %)
  • Soft Maturity  2008-05-24 YTM: 3.78 % [Restricted: 3.78 %] (Prob: 71.31 %)

These bonds are not recommended by HIMIPref™ as their Eligible For Purchase (Code) has a numerical result of “14” : “pseudoModifiedDuration (Worst) of buy side less than minimum setting”. The pseudoModifiedDurationWorstBid of this issue is 0.11 based on the following calculation:

Calculation of pseudoModifiedDurationWorstBid for BMO.PR.G
Price Yield-to-Worst
25.3341 4.45%
25.59 -2.10%
25.8459 -13.73%
Summary
Price of Instrument measured 25.5900
Percent Price Difference 2.0000 %
Yield Difference (Worst Method) -18.1862 %
PseudoModified Duration (Worst) 0.1100

These data are taken from the pseudoModifiedDurationCalculationBox and pseudoPortfolioReportBox.

The analyticalParametersReportBox shows that the value of minWorstBidPseudoModifiedDurationBuy is an optimizableParameter with a value currently set to 2.481. Thus, we can infer that HIMIPref™ analysis has been found to work better on a long-term portfolio basis when issues with such imminent callability are excluded from consideration.

Issue Comments

SLF.PR.D : Inventory Blow-out Sale!

Readers will remember that I wasn’t too impressed with this issue when it came out.

The market apparently agreed with me, as this issue is now a Blue-Light Special : currently at $23.67-95, last trade at $23.94, down $0.80 on the day. Over 17,000 shares have traded, mostly between $23.94 and $24.00.

 At these levels the issue looks quite attractive! The dividend of $1.1125 represents a current yield of 4.63% on a price of $24.00, and it’s OK to use current yield on a discounted perp! This yields exceeds the issue yield of the new Royal Bank Issue, which I quite liked.

More later.

Later, more: At the close, this looked pretty good! At the closing bid of $24.00 the current yield was 4.64% and the Yield-to-Worst 4.66%, second only to the Pfd-2(low) (DBRS) rated WN.PR.E in the PerpetualDiscount index. There certainly seems to be plenty available, but there’s no telling how long it will stay at these levels … the bid size is 11,900 shares.

 Deep thinkers fresh from reading the FOMC entrails will note that I am assuming that it won’t go down any further. Well … I don’t think it will … the objective of these blow-outs is to put such a ridiculously low price on your inventory you can dump it all quickly and stop worrying about it … but nothing is certain in this wicked world.

Market Action

October 24, 2006

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.12% 4.04% 44,328 10.65 2 -0.0796% 1,019.1
Fixed-Floater 4.96% 3.14% 166,010 8.76 7 0.1406% 1,026.8
Floater 4.53% -14.40% 76,237 6.49 5 -0.1646% 1,019.1
Op. Retract 4.68% 2.05% 87,212 2.39 17 -0.0205% 1,018.8
Split-Share 4.94% 3.78% 160,188 3.27 11 -0.0705% 1,022.1
Interest Bearing 6.89% 5.15% 56,533 2.00 7 -0.0015% 1,022.7
Perpetual-Premium 5.09% 3.94% 212,455 4.27 47 0.0236% 1,036.7
Perpetual-Discount 4.58% 4.60% 521,501 16.21 7 0.1488% 1,037.3
Major Price Changes
Issue Index Change Notes
PWF.PR.A Floater -1.0172% After yesterday’s huge gain, not entirely unexpected.
Volume Highlights
Issue Index Volume Notes
CM.PR.G PerpetualPremium 601,400 An active day! Scotia bought 200,000 from RBC, then RBC crossed 200,000, then Scotia crossed 100,000, then Scotia bought two lots of 50,000 each from RBC. All these trades were done at $26.95. An interesting issue – YTW is 4.17% based on a closing bid of $26.89 and call at $26.00 on 2010-5-31 … but it only increases to 4.25% if it survives until its $25.00 call 2014-5-31. Pays $1.35.
POW.PR.D PerpetualPremium 404,275 Lots of blocks in the 50,000 share range at $25.70, with RBC and Desjardins in the thick of things. Another entirely reasonable issue, with a Pre-Tax YTW of 4.65% based on a call 2014-11-30. Pays $1.25, issued almost exactly a year ago.
GWO.PR.G PerpetualPremium 109,035 RBC crossed 100,000 @ 26.70. Yields less than the above two active traders, 4.17% based on a call at $25.25 on 2013-1-30 and a closing bid of $26.72.
RY.PR.W PerpetualPremium 70,488 Pre-tax YTW of 4.13% based on a closing bid of $26.15 and a call at $25.00 on 2014-3-26. It went ex-dividend today.
MFC.PR.C PerpetualDiscount 60,350  

There were nineteen other index-included issues trading over 10,000 shares today.

HIMI Preferred Indices

HIMI Preferred Indices : July 29, 1994

All indices were assigned a value of 1000.0 as of December 31, 1993.

HIMI Index Values 1994-7-29
Index Closing Value (Total Return) Issues Mean Credit Quality Median YTW Median DTW Median Daily Trading Mean Current Yield
Ratchet 1,058.3 0 0 0 0 0 0
FixedFloater 1,058.3 0 0 0 0 0 0
Floater 998.7 5 1.36 6.26% 13.6 63M 7.10%
OpRet 946.0 18 1.32 7.22% 5.5 102M 7.56%
SplitShare 946.0 0 0 0 0 0 0
Interest-Bearing 946.0 0 0 0 0 0 0
Perpetual-Premium 969.6 6 1.16 7.37% 4.2 80M 8.52%
Perpetual-Discount 986.0 1 1.00 7.50% 12.0 65M 7.48%

Index Constitution, 1994-07-29, Pre-Rebalancing

Index Constitution, 1994-07-29, Post-Rebalancing

Issue Comments

BAM.PR.E / BAM.PR.G Conversion Count Announced

Brookfield has announced the results of the BAM.PR.E (Series 8 ) / BAM.PR.G (Series 9 ) conversion privilege, last discussed in this blog here.

Holders of 272,614 Series 8 Preferred Shares have elected to convert these shares into an equivalent number of Series 9 Preferred Shares, and holders of 1,028,770 Series 9 Preferred Shares have elected to convert these shares into an equivalent number of Series 8 Preferred Shares.

These conversions will be effective on November 1, 2006. Following these conversions, there will be 1,805,948 Series 8 Preferred Shares and 6,194,052 Series 9 Preferred Shares issued and outstanding.

So the Series 9, the fixed-reset issue paying 4.35% commencing with the Feb. 1, 2007, payment, will be much more liquid than the ratchet-floaters … on the other hand, there will be more of the ratchets than there were before, so perhaps they’ll make it into the HIMI Index!

Issue Comments

NTL.PR.F Conversion Terms Set

Nortel has announced the dividend rate payable for the next five years on the Series 6 shares to which holders of Series 5 shares (NTL.PR.F) are entitled to convert. If they do not convert (or should conversion be cancelled due to insufficient orders), holders will retain their NTL.PR.F shares under the existing terms and conditions.

Nortel Networks Limited announced that the fixed dividend rate for its Cumulative Redeemable Class A Preferred Shares Series 6 will be equal to 80% of the yield on five-year non-callable Government of Canada bonds to be determined on November 10, 2006.

Pretty skimpy! Especially for an issue rated Pfd-5(low) by DBRS! I rather suspect that there will be no conversions.